Home-builder and FTSE 250 dividend champion Crest Nicholson (LSE: CRST) has seen its share price plunge 35%, excluding dividends, year-to-date, underperforming the index by 26.5%.
Distributions to investors have cushioned the decline slightly over the past 12 months. Since mid-November 2017, the stock is down 23%.
While the recent declines are disappointing for existing investors, they have pushed the dividend yield on the shares up to 9.1%, significantly improving Crest’s attractiveness for income seekers.
The question I’m planning to answer today, is whether or not I feel it’s worth buying shares in Crest for its income after recent declines?
On the rocks
As my colleague Andy Ross recently highlighted, investors have been dumping shares in Crest for several reasons. For a start, investor concerns about the state of the UK housing market have lead to widespread selling of housing stocks across the board. Secondly, Crest confirmed investor fears about the state of the industry when it warned on profits last month.
This is hardly a favourable backdrop for the company, but I don’t think it’s time to give up on the home-builder just yet.
I believe one of the most telling indicators of a company’s prospects is insider dealing (the buying and selling of shares by management). Recently, Crest’s executive chairman forked out £450,000 to buy stock in a business, a significant figure which works out at around 83% of his annual salary. This seems to me to be a tremendous vote of confidence in the business. While it’s no guarantee Crest’s shares will reverse their recent decline, with so much money invested, Crest’s management is incentivised to do whatever it takes to return the business to growth.
With this being the case, I think that now could be an excellent time for risk-tolerant income seekers to follow management and buy into Crest’s dividend income stream. With a yield of more than 9% on offer at time of writing, in my opinion the risk is indeed worth the reward.
Avoid at all costs
On the other hand, one company I would avoid at all costs is The Restaurant Group (LSE: RTN).
After struggling to improve the performance of its legacy businesses, management of this casual dining chain has now decided to launch a takeover offer for the firm behind the Wagamama group of restaurants.
To fund the deal, Restaurant Group’s management has decided a rights issue is the best course of action to raise gross proceeds of approximately £315m. The 13-for-9 rights issue, according to documents published today, will be completed at 108.5p per share, a significant discount to the current share price of 246p.
Execution is the primary risk I see here. Restaurant’s management is trying to buy growth for the business, but group CEO Andy McCue, who joined the company in September 2016, has a mixed record. Despite his best efforts, so far the business has continued to flounder. I’m sceptical that this acquisition will help revive the enterprise’s fortunes.
So for the time being, I’m staying away. I would rather own FTSE 250 income giant Crest Nicholson, which seems to have a more sustainable outlook.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.